|Source: Twicepix on Flickr|
"Zurich/Basel, September 15, 2011, 08:54 AM Media Release
UBS has discovered a loss due to unauthorized trading by a trader in its Investment Bank. The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of USD 2 billion. It is possible that this could lead UBS to report a loss for the third quarter of 2011. No client positions were affected."
UBSN on the Swiss Stock Exchange is down 5.85% right now on this news, and it is down 44% in 1-year. It hit a low of 9.88 today, which is somewhat close to the capitulation low of 8.55 on 3/10/2009. I found more articles on the situation: ETFs under the spotlight as shadow falls across UBS's Delta One operation (Telegraph), The curse of Delta One strikes UBS (FT Alphaville), UBS rogue trader – Grübel memo (FT Alphaville) UBS rogue trade – the wider costs (FT Alphaville). Here is related news from 11/6/2009 when it happened with client money. Risk management problems?
"The Financial Services Authority (FSA) has fined UBS £8 million ($13.2 million) for weak controls that allowed staff in its private bank to make thousands of unauthorised trades with clients’ money and then hide the losses. It is the third-largest fine awarded by the FSA." (timesonline.co.uk)
*Update: UBSN closed down 10.75% at 9.75. Kweku Adoboli, of UBS's Delta One division, which trades and makes markets in "synthetic assets" and derivatives for clients, has been arrested. Mis-hedging against Swiss franc exposure and volatility could have been responsible for the $2 billion loss, according to eFinancialNews. The Swiss National Bank recently pegged EUR/CHF at 1.20 to halt runaway appreciation in the Swiss Franc during the Eurozone crisis.
"Several market participants told Financial News this morning that Adoboli may have mis-hedged his exposure to the Swiss franc and attempted to hide it from his team when the market moved against him by overcompensating with a hedge in the opposite direction. Any short position on Swiss franc volatility would have suffered after volatilities rose again earlier this week." (continue reading at efinancialnews)
Here's more on Delta One trading desks at the Financial Times.
"Many Delta One desks also specialise in providing swap execution services to so-called synthetic ETFs, meaning they provide the over-the-counter derivative which allows the ETF to track its underlying asset. “Delta One desks are essentially huge trading counterparties which means they take on a lot of risk for a huge amount of business,”" (continue reading at FT.com)